US real estate investment guide 2026: buying property in America as a foreign investor

The US is the world's largest real estate market and one of the most open to foreign buyers. No restrictions on ownership, transparent title systems, a liquid resale market, and strong long-term population and GDP growth make American property a compelling portfolio addition.

The complexity is not access — it's tax. FIRPTA withholding, net election for rental income, state income taxes, property taxes that vary 10x across states, and the catastrophic US estate tax trap for non-resident aliens all require upfront planning. Get the structure right before purchase; restructuring after the fact is expensive.

This guide covers US real estate for three buyer types: Indian residents (including NRIs), UAE residents, and UK residents. Each section addresses home-country tax obligations alongside US tax rules.

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US real estate market overview: city by city

New York City

Manhattan: The most expensive residential market in the US. Average price per sqft for new-build condominiums on the Upper West Side, Midtown, and Tribeca runs $2,000–$4,500/sqft. Co-ops (cooperative ownership) are common but restrict foreign buyers — most co-op boards require primary residence and minimum liquid asset requirements that exclude investment buyers. Stick to condominiums as a foreign buyer.

Gross rental yields in Manhattan are low: 2.5–3.5% on a $3M condo. Carrying costs (maintenance fees, property tax at 1.0% of assessed value for primary; higher for non-primary) compress net yields further. Manhattan is better framed as capital preservation and appreciation than income generation.

Brooklyn and Queens: 25–40% cheaper than Manhattan for comparable space, yields reaching 4–5% gross on two- and three-family townhouses. More tenant-friendly (rent stabilisation and control laws), which creates risk for landlords. Long Island City (Queens) has seen strong growth from Amazon HQ2 proximity.

New York state property taxes: For non-primary residences in NYC, the effective tax rate on market value is approximately 0.8–1.2% annually. The mansion tax applies at closing: 1% on sales $1M+, stepping up to 3.9% on sales above $25M. There is also New York State transfer tax (0.4%) and NYC transfer tax (1–1.425%) at purchase.

Miami and South Florida

Miami has emerged as a premier international city — Latin American capital flight, crypto wealth, and financial services relocation have driven prices significantly since 2020. Brickell (the financial district), Edgewater, Wynwood, and Miami Beach attract the most foreign capital.

Prices: Luxury condos in Brickell and Miami Beach trade at $1,000–$3,000/sqft. New construction from top developers (Related Group, Swire) can exceed $4,000/sqft. Short-term rental yields in Miami Beach are attractive (8–12% gross on Airbnb/VRBO) but the city has become more restrictive — check zoning for short-term rental permits before buying.

Gross rental yields: 4–6% on long-term lets in Brickell; higher in emerging suburbs (Doral, Kendall, Hialeah).

Property taxes (Miami-Dade): Non-homestead properties (everything a foreigner buys) are taxed at effective rates of 1.5–2.2% of market value annually. Florida has no state income tax — a significant advantage for high-income rental operations versus California or New York.

Hurricane insurance: Required for mortgaged properties; rates have risen dramatically (2–5% of structure value annually in high-risk coastal zones). Factor this into yield calculations.

Los Angeles

LA is a large, diverse market — the Westside (Beverly Hills, Bel-Air, Santa Monica, Venice) is trophy real estate at $2,000–$5,000/sqft. The San Fernando Valley, Long Beach, and the Inland Empire offer more affordable entry points with better yields.

Prop 13 (California property tax): California limits property tax increases to 2% annually based on the purchase-date assessed value. New buyers are assessed at purchase price (1.1–1.3% effective tax rate). This means long-held properties have very low property taxes — a seller advantage; a buyer starts at current value.

California state income tax: Up to 13.3% on rental income — the highest state rate in the US. After federal and state income tax, net yields on LA property can be modest.

Mansionisation and zoning: LA has significant ADU (accessory dwelling unit) potential — California now allows multiple ADUs on most residential lots, creating rental income from the backyard. Many foreign investors buy single-family homes, build ADUs, and run multi-unit rentals.

Texas: Austin and Dallas

Texas has no state income tax and a large, growing population. Austin exploded post-COVID as tech firms relocated; Dallas-Fort Worth is the largest market, driven by corporate headquarters, financial services, and population growth from other states.

Property tax: Texas compensates for zero state income tax with high property taxes — effective rates of 1.8–2.5% of market value annually. On a $600,000 Austin home, that's $12,000–$15,000 per year in property tax alone.

Austin prices (2026): Post-peak adjustment from 2022 highs. Single-family homes in North Austin and East Austin trade at $400–$700K; luxury condos downtown at $600–$1,500/sqft. Yields have improved — 4–6% gross on long-term lets.

Dallas: Slightly more affordable with stronger yield profiles — suburban DFW properties at $300–$500K with 5–7% gross yields. Strong rental demand from corporate relocations (Toyota, Charles Schwab, Goldman Sachs have major operations).

Seattle

Amazon's HQ, Microsoft, Boeing, and a growing tech corridor drive Seattle's housing market. The greater Seattle area (Bellevue, Kirkland, Redmond) has some of the highest-paid workers in the US.

Prices: East Side (Bellevue/Kirkland) single-family: $1.5M–$3M. Seattle city: $700K–$1.5M for single-family. Condos: $500K–$1.2M.

State taxes: Washington State has no income tax. Property taxes average 0.9% of assessed value in King County — among the lower property tax environments relative to the market price.

Rental market: Low vacancy, high incomes, limited supply growth. Yields 3.5–5% gross on long-term lets.

Chicago

The third-largest US city with significant price-to-income and price-to-rent ratios that make it one of the more yield-friendly major urban markets for investors.

Prices: North Side neighbourhoods (Lincoln Park, Lakeview, River North) at $300–$600/sqft. Downtown condos at $400–$800/sqft. South Side and west suburbs significantly cheaper.

Property tax (Cook County): Effective rates of 1.8–2.4% are high but manageable because prices are lower than coastal cities. Gross yields of 5–8% are achievable.

Risk factors: Illinois state fiscal stress, pension obligations, and population outflows create long-term value uncertainty. Chicago is a liquidity risk — not a capital loss risk in prime areas, but exit timing matters more than in coastal markets.

Houston

Energy capital with a no-zoning framework (unique in major US cities). New supply can be built almost anywhere, which caps long-term appreciation but makes residential yields more sustainable. Flood risk is significant — FEMA flood zone maps and flood insurance are essential diligence items.

Price range: $150–$350/sqft in most suburban areas. Inner Loop (Montrose, Heights) at $300–$500/sqft.

No state income tax. Property taxes 2.0–2.5% — high, but offset by low purchase prices and strong yields.

Gross yields: 5–8% achievable in suburban Houston; some areas 8%+ on multi-family.

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Market summary table

City	Price range (condo, per sqft)	Est. gross yield	State income tax	Property tax rate
Manhattan, NYC	$2,000–$4,500	2.5–3.5%	10.9% + 3.876% NYC	0.8–1.2%
Miami, FL	$600–$3,000	4–7%	0%	1.5–2.2%
Los Angeles, CA	$700–$5,000	2.5–4%	13.3%	1.1–1.3%
Austin, TX	$400–$1,500	4–6%	0%	1.8–2.5%
Dallas, TX	$250–$900	5–7%	0%	1.8–2.5%
Seattle, WA	$500–$1,500	3.5–5%	0%	0.9–1.2%
Chicago, IL	$300–$800	5–8%	4.95%	1.8–2.4%
Houston, TX	$150–$500	5–8%+	0%	2.0–2.5%

Gross yields are estimates; net yields after property tax, insurance, management, and vacancy are typically 2–4 percentage points lower.

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Foreign buyer access: what you can and cannot do

What foreigners can do:

• Purchase any residential or commercial property in any US state
• Own property individually, through an LLC, through a trust, or through a foreign corporation
• Rent the property out (long-term or short-term, subject to local regulations)
• Obtain a mortgage (portfolio loans, DSCR loans — see below)
• Sell at any time

What is restricted or complex:

• Fannie/Freddie conforming mortgages: Not available for non-US-resident foreign nationals. You need a portfolio loan from a bank or a DSCR (Debt Service Coverage Ratio) loan from a private lender. Rates are typically 1–2% higher than conforming rates, and LTV is capped at 60–70%.
• FHA/VA loans: Only for US citizens or eligible residents
• Some states restrict certain foreign governments from buying agricultural land (AFSPA state-level laws targeting Chinese, Russian, Iranian, North Korean entities) — not applicable to Indian, UAE, or UK citizens as individuals

Mortgage options for foreign nationals:

1. Portfolio loans from large banks: Citibank, HSBC, Santander, and TD Bank offer foreign national mortgage programs. Requires minimum 30–40% down payment, 12–24 months bank statements, and often a US or international credit reference. Processing is slower (60–90 days vs. 30 days for conforming).
2. DSCR loans: Asset-based lending on rental income coverage. The property's income must cover 1.0–1.25× the mortgage payment. Down payment 25–35%. No US employment verification required — suitable for foreign investors with rental income.
3. Cash purchase: Simplest option. Around 40% of foreign buyers pay cash according to NAR data. No mortgage complications, faster closing.

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Buying process in the US

The US buying process is relatively efficient compared to the UK or India:

Step 1: Get an ITIN (if not already a US person). File Form W-7 with certified passport copy. Takes 7–11 weeks — apply early.

Step 2: Open a US bank account. You will need a US bank account for earnest money deposits, closing funds, and rental income collection. HSBC, Citibank, and Chase have international customer programs that allow non-resident account opening with proper documentation (passport, proof of address, source of funds).

Step 3: Engage a buyer's agent. Since the NAR settlement (August 2024), buyers must sign a buyer representation agreement specifying the agent's commission. In many markets, sellers still offer to cover buyer agent commissions — but you should be prepared to pay 2–3% directly. The agent searches MLS listings, arranges showings, and negotiates the purchase contract.

Step 4: Make an offer and go under contract. The purchase contract (often the standard form for the state) specifies price, earnest money (typically 1–3% of purchase price, paid within 3 days), contingencies (inspection, financing, appraisal), and closing date (30–60 days typical).

Step 5: Due diligence. During the contingency period:

• Home inspection: A licensed inspector reviews the property condition. Typical cost: $400–$800. Reveals structural, electrical, plumbing issues.
• Title search: The title company or attorney searches for liens, encumbrances, and ownership chain issues.
• FEMA flood zone check: Critical for Florida, Texas, Louisiana, coastal properties. If in a high-risk flood zone, flood insurance is required.
• HOA review: If the property is in a homeowners association, review financials, reserves, rules, and any pending assessments.
• Foreign ownership structure decision: Decide whether to purchase in your name or through a US LLC (see LLC section below).

Step 6: Closing. Handled by a title company or settlement attorney (depending on state). You sign a stack of documents (can be done remotely with a notarised power of attorney or through docusign + remote notarisation). Funds wire to the escrow account. The deed is recorded. You own the property.

Closing costs (buyer):

• Lender fees (if mortgaged): $2,000–$5,000
• Title insurance (owner's policy): 0.3–0.5% of purchase price
• Title insurance (lender's policy, if mortgaged): 0.2–0.3% of purchase price
• Recording fees: $100–$500
• Transfer taxes (varies by state/county — NYC has significant transfer taxes; Florida, Texas have minimal)
• Pre-paid items (property tax escrow, insurance): 2–4 months upfront
• Total buyer closing costs: typically 2–4% of purchase price

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FIRPTA: the withholding that surprises every foreign seller

FIRPTA (Foreign Investment in Real Property Tax Act, IRC Section 1445) requires the buyer to withhold 15% of the gross sale price from any sale of US real property by a foreign seller and remit it to the IRS within 20 days of closing.

Key points:

• It is 15% of price, not profit. On a $500,000 sale, the withholding is $75,000 — regardless of whether you made or lost money.
• If your actual US tax liability is lower than $75,000, you recover the excess by filing Form 1040-NR for the sale year.
• FIRPTA applies to direct ownership. If you own through a US LLC, the LLC (as a disregarded entity) is a US person — but if the LLC is owned by a foreign entity or you are a non-resident, the FIRPTA rules still apply at the entity level. Structure advice: consult a US international tax attorney before setting up ownership.

Withholding certificate: You can apply for IRS Form 8288-B (Withholding Certificate) before closing to reduce withholding to the actual estimated tax. The IRS processes these applications in 45–90 days — apply early if you know your sale date. If approved, the buyer withholds only the amount specified.

FIRPTA exceptions (withholding not required):

• Sale price below $300,000 and the buyer will use as personal residence (rare for foreign buyers)
• Seller provides a certification of US status (you are a US person — not applicable for foreign investors)
• Withholding certificate granted by IRS

Foreign sellers: plan for FIRPTA. The withholding is essentially a forced prepayment of tax. Budget for the tax refund lag — if you close in January 2027, file Form 1040-NR by the June 2027 deadline and expect the refund 3–6 months later.

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US rental income: the 30% trap and the net election

Foreign owners of US rental property face a choice:

Option 1: FDAP withholding (the default — and usually wrong)

The default tax treatment for foreign persons receiving "fixed or determinable annual or periodical" (FDAP) income from US sources is a flat 30% withholding on gross rental income — no deductions for mortgage interest, property tax, depreciation, or expenses.

On a $3,000/month rental ($36,000/year), you pay $10,800/year in US tax — on gross income, before any expenses.

Option 2: Net election (almost always better)

Under IRC Section 871(d), a foreign person can elect to treat US real property rental income as "effectively connected income" (ECI). This means:

• You file a US tax return (Form 1040-NR) every year
• Rental income is taxed at graduated US rates (10%, 12%, 22%, 24%, 32%, 35%, 37%) on net income after deductions:
  • Mortgage interest
  • Property taxes
  • Depreciation (residential property: 27.5 years straight-line, so a $400,000 structure value = $14,545/year depreciation deduction)
  • Insurance
  • Property management fees (8–12% of gross rent typically)
  • Repairs and maintenance
  • Accounting and legal fees
  • Travel to inspect property (subject to rules)

Example: net election vs. FDAP

Item	FDAP (gross)	Net election
Gross rental income	$36,000	$36,000
Mortgage interest	Not deductible	($14,400)
Property tax	Not deductible	($7,200)
Depreciation	Not deductible	($14,545)
Insurance + management	Not deductible	($5,400)
Taxable income	$36,000	($5,545) loss
US tax at 30% / graduated	$10,800	$0

With the net election, this property generates a paper loss (largely due to depreciation) with zero US income tax. That loss may be usable against future US rental income from the same or other US properties.

How to make the net election: File Form W-8ECI with your property manager or tenant before the first rent payment. Renew the W-8ECI every 3 years or when your circumstances change.

Net election is irrevocable for the year it's made and continues in future years unless explicitly revoked. Once you've made the election, you must file Form 1040-NR every year even if net income is zero or negative.

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Depreciation: the great gift that comes with a cost

Depreciation is a non-cash deduction that shelters rental income on paper. But when you sell, the IRS recaptures it.

How depreciation works:

• Only the structure (building) is depreciable — land is not
• Residential rental property depreciates over 27.5 years straight-line
• Commercial over 39 years
• Cost segregation studies can accelerate depreciation by reclassifying components to shorter lives (5, 7, or 15 years)

Depreciation recapture on sale: When you sell, accumulated depreciation is taxed at a special rate of 25% (Section 1250 unrecaptured depreciation), not at the regular long-term capital gains rate. This is a US-only tax concept that surprises many Indian and international buyers who expect capital gains tax only.

Example:

• Buy for $500,000 (land $100K, structure $400K)
• Hold for 10 years; depreciation taken: $400K / 27.5 × 10 = $145,455
• Sell for $700,000
• Adjusted cost basis: $500,000 - $145,455 = $354,545
• Total gain: $700,000 - $354,545 = $345,455
• Breakdown: $145,455 depreciation recapture at 25% = $36,364
• Remaining gain ($200,000) at long-term capital gains rate (15% for most foreign investors with lower US income)
• Total US capital gains tax: $36,364 + $30,000 = $66,364

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US estate tax: the $60,000 trap

This is the most under-appreciated risk in US real estate for foreign investors.

The rule: Non-resident aliens (NRAs — non-US-citizen, non-US-domicile) are subject to US estate tax on US-situs assets. US real estate is a US-situs asset.

The exemption gap:

• US citizens and residents: $13.61 million estate tax exemption (2024), scheduled to revert to approximately $7 million in 2026 if the Tax Cuts and Jobs Act provision expires
• Non-resident aliens: $60,000 — essentially no exemption

The rate: 40% on the taxable estate above $60,000.

On a $600,000 Miami condo held directly:

• Taxable estate: $600,000 - $60,000 = $540,000
• US estate tax: $540,000 × 40% = $216,000

Your heirs would owe $216,000 to the IRS — in addition to probate, inheritance costs in their home country, and any other taxes. This is not hypothetical; it is routinely enforced.

DTAA estate tax provisions:

The India-US tax treaty does not meaningfully address US estate tax for Indian residents. The UK-US estate tax treaty does provide some protection for UK residents — the $60,000 exemption is prorated upward based on the ratio of US assets to worldwide estate. A UK resident with a $600,000 US condo and a $5,000,000 worldwide estate gets a prorated exemption of approximately $813,000 — larger than $60,000, potentially eliminating the estate tax on the condo if it's the only US asset. However, this requires proper filing and the estate must be large enough worldwide.

The UAE-US situation: There is no US-UAE tax treaty. UAE residents own US real estate under the $60,000 bare exemption with no treaty relief.

Solution: LLC ownership structure

Hold US real estate through a foreign-owned LLC (typically a Wyoming or Delaware LLC) owned by a foreign entity (a UAE free zone company, a UK or BVI holding company, or a Cayman/Jersey structure). The LLC interest is a foreign-situs asset — it is not subject to US estate tax even though the underlying property is in the US.

Structuring notes:

• The LLC itself must be properly formed and maintained (annual fees, registered agent, operating agreement)
• Foreign-owned single-member LLCs are treated as disregarded entities for income tax — the foreign owner files directly on Form 1040-NR or through appropriate structure
• Foreign-owned LLCs with non-resident members must file Form 5472 annually (reporting of transactions with foreign owners) — failure to file carries a $25,000 penalty per year
• The LLC structure adds cost ($2,000–$5,000 to set up, $500–$1,500/year to maintain) but is virtually essential for any significant US real estate holding

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State-level considerations

States with no income tax (significant for rental income)

Florida, Texas, Washington State, Nevada, Wyoming, South Dakota, Tennessee — rental income from property in these states is subject only to federal income tax, not state income tax. For a foreign investor in the 22% federal bracket, state-level zero tax means a material savings vs. California (13.3%) or New York (10.9%).

Transfer taxes at purchase

Location	Transfer tax
NYC (New York City)	1.425% buyer (> $500K) + 0.4% NY State
Manhattan (additional)	Mansion tax: 1–3.9% on $1M+
Florida	Documentary stamps: 0.7% seller-paid; nominal buyer costs
Texas	No state transfer tax
California	County-level: 0.11% of value; some cities add more
Illinois (Cook County)	0.5% state + 0.75% county
Washington (State)	1.1%–3% depending on price

Short-term rental regulations

Market	STR rules
New York City	Virtually banned for entire-home STR (Local Law 18, 2023): host must be present, max 2 guests
Miami Beach	Allowed in designated zones; requires city permit ($600/yr) and zoning compliance
Los Angeles	Primary residence only for STR; non-primary homes not permitted
Austin	Permitting required; Type 1 (owner-occupied) and Type 2 (investment) with Type 2 facing geographic restrictions
Chicago	STR license required; condo associations can prohibit
Dallas	Mostly unregulated in residential zones — investor-friendly for STR
Houston	Minimal STR regulation (no zoning)

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Tax for Indian residents buying US property

Indian tax obligations overview

Indian residents (and NRIs making the LRS investment) who buy US real estate must address both the US tax side (covered above) and the Indian tax side.

LRS and the investment funding

Indian residents can invest up to USD 250,000 per financial year under the RBI's Liberalised Remittance Scheme (LRS). This is cumulative across all overseas purposes (education, travel, investment, property). A property costing $300,000+ requires either multiple years of LRS remittances or a foreign currency account pre-funded from prior overseas income.

LRS usage exclusions: LRS cannot be used for:

• Purchase in countries on the FATF non-compliant list (not an issue for the US)
• Real estate in countries with which India has no DTAA (the US has a DTAA with India — so permitted)

AD Category-I Bank TCS: Banks collect 20% TCS (Tax Collected at Source) on LRS remittances exceeding INR 7 lakh in a financial year. This is not an additional tax — it is offset against your income tax liability or refunded when you file your ITR. But it is a cash flow event: on a ₹84 lakh ($100,000) remittance, the bank collects ₹16.8 lakh upfront.

Schedule FA: annual disclosure

All Indian residents holding US property must disclose it in Schedule FA (Foreign Assets) of their ITR-2 or ITR-3 every year, regardless of whether any transaction occurred.

What to disclose:

• Property address, country (United States)
• Nature of ownership (direct, through LLC, etc.)
• Cost of acquisition in INR
• Peak and closing value during the year

Failure to disclose triggers the Black Money Act, with a minimum penalty of ₹10 lakh per year of non-disclosure and potential prosecution.

Rental income in India

US rental income received by an Indian resident is foreign income and must be reported in Schedule FSI of the ITR.

Steps:

1. Convert gross US rental income to INR at the SBI TTBR rate for each transaction date (or use annual average)
2. Report the INR equivalent in Schedule FSI under "rental income"
3. File Form 67 to claim FTC for the US tax paid (on net basis under the net election, or on the 30% FDAP withholding)
4. Indian tax applies to the net rental income at slab rates; FTC reduces Indian tax payable dollar for dollar, subject to the cap (FTC cannot exceed Indian tax attributable to the foreign income)

India-US DTAA Article 6 (Real Property Income): Rental income from US property is taxable in both the US and India. The DTAA does not exempt it from India — it simply allows the FTC mechanism to prevent double taxation.

Capital gains in India on sale of US property

When you sell US property, you have a capital gains event in India:

LTCG (held more than 24 months): 12.5% on the gain above cost basis, with no indexation.

STCG (held 24 months or less): Taxed at slab rate (up to 30%).

Cost basis in India: The purchase price in INR at the SBI TTBR rate on the date of purchase.

The currency gain problem: If USD/INR appreciated from ₹75 to ₹84 during your holding period, your gain in INR is larger than your gain in USD. Example:

• Buy for $500,000 when 1 USD = ₹75 → INR cost: ₹3.75 crore
• Sell for $600,000 when 1 USD = ₹84 → INR sale: ₹5.04 crore
• INR gain: ₹1.29 crore
• USD gain: $100,000 (₹0.84 crore at sale rate)
• You pay Indian LTCG on ₹1.29 crore even though in real terms you only made ₹0.84 crore

There is no Indian tax exemption for currency-driven gains on foreign property. FTC from the US cannot fully offset the Indian tax because the US gain is computed differently (in USD).

Indian LTCG on US property is additive to the US tax (after FTC). For a high-bracket Indian resident, the effective combined tax on US property sale can be significant — plan holding periods and exit strategy accordingly.

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Tax for UAE residents buying US property

UAE domestic tax

UAE has no personal income tax or capital gains tax. Rental income from US property earned by a UAE resident is not taxed in the UAE. The UAE's economic substance considerations and VAT system apply to businesses, not individuals holding foreign property personally.

US tax applies regardless

UAE residents face the full US tax regime:

• 30% FDAP withholding on US rental income (unless net election is made — strongly recommended)
• US income tax on net rental income under the net election (Form 1040-NR)
• FIRPTA 15% of sale price withheld on sale
• US capital gains tax on sale (0%, 15%, or 20% LTCG rate for non-residents depending on income; 25% recapture)
• US estate tax at 40% above $60,000 — with no US-UAE treaty to provide relief

The UAE-US tax treaty situation: there is no income tax treaty and no estate tax treaty between the US and UAE. UAE residents receive no treaty benefits when investing in US real estate. Every US tax obligation applies at the statutory rate.

Estate tax is the biggest risk for UAE residents holding US real estate directly. A $1M Miami apartment owned directly by a UAE national with a $3M global net worth: potential US estate tax of ($1M - $60K) × 40% = $376,000. Use the LLC/foreign holding structure.

FATF / FINCEN considerations

UAE banks are required to conduct enhanced due diligence on real estate transactions. US financial institutions conducting cross-border transactions with UAE customers face similar scrutiny under FinCEN real estate geographic targeting orders (GTOs). Expect documentation requests (source of funds, UBO declarations) when buying US property as a UAE resident.

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Tax for UK residents buying US property

US-UK tax treaty

The US and UK have a comprehensive income tax treaty and an estate tax treaty. Key provisions:

Income tax treaty (US-UK 1975, as updated):

• Article 6: Rental income from US property is taxable in the US. The UK taxes it too. Credits are available to prevent double taxation.
• Article 13: Capital gains from US real property may be taxed in the US. The UK also taxes. FTC available.
• Reduced withholding rates may apply to dividends/interest but not to real property rental income.

Estate tax treaty (US-UK 1978, as updated):

• UK residents holding US real estate benefit from the prorated exemption: the estate tax exemption is scaled up based on the ratio of US assets to worldwide estate. This is meaningfully better than the $60,000 flat exemption for non-treaty jurisdictions (UAE, India).
• However, the protection is only partial — a UK resident with primarily UK assets and a small US property may still owe some US estate tax if the US property is substantial relative to the prorated exemption.

UK tax on US rental income

UK residents are taxed on worldwide income. US rental income is UK-taxable:

UK income tax on rental income:

• Added to UK income; taxed at 20%, 40%, or 45% depending on total income
• FTC available for US federal income tax paid on the same rental income
• FTC limited to the lower of US tax paid or UK tax attributable to the foreign income

Section 24 (UK mortgage interest restriction): If the UK resident also holds UK buy-to-let property, Section 24 restricts mortgage interest deductions there — but US rental income is reported under UK "overseas property" rules, and the Section 24 restriction applies to UK property, not overseas property. US mortgage interest on the US property is still deductible against US rental income (under the net election), not on the UK return directly. The UK return sees only the net income after US-deductible items.

UK CGT on sale of US property

UK residents pay UK capital gains tax on worldwide assets, including US real estate:

Rates: 18% (basic rate) or 24% (higher rate) on residential property gains. The UK has its own base cost and no depreciation system.

FTC: US capital gains tax (including 25% depreciation recapture) paid on the US sale can be credited against UK CGT attributable to the same gain. In many cases, the combined US taxes exceed UK CGT — leaving minimal residual UK CGT after the FTC.

UK 60-day reporting: If the US property is UK-situs (it is not — US property is US-situs), the 60-day CGT reporting would apply. This does NOT apply to US property. UK residents selling US property report it on their UK annual Self Assessment (not on a 60-day window). The 60-day rule is for UK residential property only.

Filing obligations for UK residents with US property

US side:

• Form 1040-NR annually (net election for rental income)
• FIRPTA Form 8288 on sale (buyer files; seller gets credit)
• ITIN required

UK side:

• Self Assessment tax return annually, reporting US rental income in the "foreign property" section
• Report US property sale in capital gains pages
• Claim FTC via Foreign Tax Credit pages

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LLC structure: the essential framework for foreign investors

Any foreign investor holding US real estate above $300,000 should seriously consider holding through a structure rather than directly. The estate tax exposure alone justifies the cost.

Common structures

Option 1: Single US LLC (Wyoming or Delaware)

A foreign person owns a US LLC, which owns the property. The LLC is treated as a "disregarded entity" for US income tax — the foreign owner still files Form 1040-NR directly. The estate tax treatment of a single-member LLC owned by a non-resident alien is not definitively protective — the IRS may look through the LLC to the underlying US real property asset for estate tax purposes if the LLC is purely a holding entity with no business substance.

Better for: Privacy (Wyoming LLCs do not require member disclosure), liability protection (slip-and-fall lawsuit protection), creditor protection. Moderate estate tax protection.

Option 2: US LLC owned by a foreign entity

The foreign entity (e.g., a UAE free zone company, a BVI company, a UK Ltd, or an Isle of Man/Cayman entity) owns the US LLC, which owns the property.

The LLC interest held by the foreign entity is a foreign asset (the interest in a UAE/BVI company is UAE/BVI-situs). US estate tax attaches to US-situs assets — and the membership interest in a US LLC owned by a foreign entity is foreign-situs. This structure provides meaningful estate tax protection.

This is the structure most international tax attorneys recommend for significant US real estate holdings.

Costs and obligations:

• Foreign entity formation: $3,000–$8,000 (depending on jurisdiction)
• Annual maintenance: $1,500–$3,000
• US LLC: $100–$300 formation; $50–$200/year in most states
• Form 5472 filing: Required annually for foreign-owned US LLCs; penalty $25,000/year for non-filing
• More complex US income tax return (Form 1120-F or 1040-NR depending on structure)

Option 3: Delaware statutory trust or US REIT

More complex institutional-grade structures for multiple properties. Not commonly used for first-time individual foreign buyers.

Structure decision flowchart

Situation	Recommended approach
Buying under $300,000, holding short-term	Direct purchase acceptable; use LLC for liability protection
$300K–$1M, UAE or Indian buyer	US LLC owned by foreign entity; strong estate tax protection
$300K–$1M, UK buyer	Direct purchase or UK Ltd ownership; UK-US estate treaty provides some relief
Above $1M, any foreign buyer	Foreign entity → US LLC; consult US international tax attorney before purchase
Multiple US properties	Separate LLCs per property (ring-fence liability); umbrella foreign holding entity

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US property taxes: the annual carrying cost

Unlike the UK (council tax) or UAE (no property tax), the US has substantial annual property taxes that are assessed by county governments and used primarily for local schools and infrastructure.

Property tax rates vary enormously:

State	Effective property tax rate	Notes
New Jersey	2.2–2.5%	Among highest in US
Illinois	1.9–2.4%	Cook County especially high
Texas	1.8–2.5%	No income tax offset
New York	1.0–1.5% (city varies)	NYC has complex assessment rules
California	1.1–1.3%	Prop 13 caps annual increases
Florida	1.5–2.2%	No homestead exemption for non-primary
Washington	0.9–1.2%	King County; no income tax
Nevada	0.6–0.8%	Among lowest

Homestead exemptions: Most states offer reduced property tax rates for owner-occupied primary residences. Foreign investors buying rental properties do not qualify.

Property tax deductibility: Under SALT (State and Local Tax) deduction rules in the US, property tax on investment properties is still fully deductible against rental income (not subject to the $10,000 SALT cap, which applies only to personal returns). Under the net election, your property tax is deductible against US rental income.

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ITIN, FBAR, and other compliance requirements

ITIN (Individual Taxpayer Identification Number)

Required for any foreign person who:

• Owns US rental property and makes the net election
• Has FIRPTA withholding and wants to file for a refund
• Receives US income reportable on Form 1042-S

How to get: File Form W-7 with your IRS Form 1040-NR (or with a signed letter from your US tax professional). Include certified copies of your passport. Processing: 7–11 weeks. Certifying Acceptance Agents (CAAs) can certify documents and often expedite.

FBAR (FinCEN 114)

Required if you have US financial accounts with a value exceeding $10,000 at any point during the year. US real estate does not require FBAR — FBAR covers bank accounts, brokerage accounts, and similar financial accounts. A US LLC bank account that you have signature authority over may require FBAR if the balance exceeds $10,000.

Form 8938 (FATCA)

Required for specified foreign financial assets above certain thresholds. US real estate is not a specified foreign financial asset for FATCA purposes — it is a hard asset. However, an interest in a foreign entity (e.g., a BVI holding company owning the US LLC) may be a specified foreign financial asset and require Form 8938 if the value exceeds the threshold ($50,000 for US residents; higher thresholds apply to overseas US persons — not applicable to foreign investors).

For Indian residents: Indian FATCA obligations (Foreign Asset schedule FA) cover US real estate directly, as discussed above. The FBAR is a US-side form; the Schedule FA is an India-side form. Both may be required.

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Key numbers at a glance

Item	Amount
FIRPTA withholding on sale	15% of gross sale price
US FDAP withholding on rental (default)	30% of gross rent
US LTCG rate (non-residents, typical)	15%
Depreciation recapture rate	25%
US estate tax rate	40%
Non-resident alien US estate exemption	$60,000
Mansion tax threshold (NYC)	$1,000,000
LRS annual limit (India)	USD 250,000
India LTCG on foreign property (>24 months)	12.5% (no indexation)
Form 5472 non-filing penalty	$25,000/year
Form W-8ECI renewal interval	Every 3 years

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US real estate vs. UAE and UK: comparison for Indian investors

Factor	US	UAE	UK
Foreign ownership	Unrestricted	Restricted to designated freehold zones	Unrestricted
Rental yield (major cities)	3–8% gross	5–10% gross	3–6% gross
Income tax on rental	0% (net loss) – 37% after deductions	0% (UAE domestic)	20–45% (UK Income Tax)
Capital gains tax	15–20% LTCG + 25% recapture	0%	18–24% UK CGT
Estate tax trap	Major ($60K exemption for NRAs)	None	Yes — UK IHT 40% above £325K for long-term residents; US IHT 40% above $60K
Annual property tax	1–2.5% of value	0%	Council tax (modest, tenant pays)
Transfer costs at purchase	2–4% closing costs	DLD 4% + AED admin	SDLT up to 17% (non-resident, additional dwelling)
Language / legal system	Common law; transparent	Civil law; RERA regulated	Common law; complex leasehold
Liquidity	Very high	High in prime Dubai	Moderate (transaction costs high)
Mortgage access (foreign nationals)	Available (portfolio/DSCR loans)	Available (up to 50–75% LTV)	Available (non-resident lenders)
Key risk	Estate tax + FIRPTA	Off-plan developer failure	Leasehold complexity + Section 24

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ITR-2 / ITR-3 checklist for Indian residents with US property

• Disclose US property in Schedule FA (address, cost, peak value, year-end value)
• Report US rental income in Schedule FSI, converted to INR at SBI TTBR
• File Form 67 for FTC on US taxes paid (federal income tax under net election; or 30% FDAP withholding)
• Report FIRPTA withholding as FTC if property sold during the year
• Report US property sale proceeds in Schedule CG (LTCG or STCG based on holding period)
• Account for INR/USD currency movement in computing INR gain
• Track LRS remittances across the financial year; ensure USD 250K limit not exceeded
• TCS reclaim: TCS collected by AD bank is recoverable via ITR; include in advance tax credit
• If held through LLC: disclose LLC interest as foreign asset in Schedule FA (in addition to underlying property, or instead of, depending on structure)
• Form 67 must be filed before the ITR — not simultaneously — for FTC to be allowed